Problem 21A-2 b-f On January 1, 2017, Indigo Company contracts to lease equipment for 5 years, agreeing to make a payment of $879,904 at the beginning of each year, starting January 1, 2017. The leased equipment is to be capitalized at $4,000,000. The asset is to be amortized on a double-declining-balance basis, and the obligation is to be reduced on an effective-interest basis. Indigo's incremental borrowing rate is 6%, and the implicit rate in the lease is 5%, which is known by Indigo. Title to the equipment transfers to Indigo at the end of the lease. The asset has an estimated useful life of 5 years and no residual value. Click here to view factor tables V Your answer correct. Prepare the jourmal entries that Indigo should record on January 1, 2017. (Credit account titles are automatically Indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answers to 0 decimal places, e.g. 5,275.) Account Titles and Explanation Debit Date Credit 4000000 January 1, 2017 Right-of-Use Asset Lease Liability 4000000 (To record the lease.) 879904 Lease Liability 879904 Cash (To record lease payment.) SHOW ANSWER SHOW LIST OF ACCOUNTS SHOW SOLUTION LINK TO TEXT LINK TO TEXT Z Your answer is partially correct. Try again. Prepare the journal entries to record amortization of the leased asset and interest expense for the year 2017. (Credit account titles are automatically indented when amount is entered. De not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,275.) Account Titles and Explanation Debit Date Credit December 31, 2017 Amortization Expense 1600000 1600000 Right-of-Use Asset (To record amortization of the leased asset.) December 31, 2017 Interest Expense 156004 Interest Payable 156004 SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT Your answer is correct. Prepare the journal entry to record the lease payment of January 1, 2018, assuming reversing entries are not made. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round present value factor calculations to 5 decin places, e.g. 1.25124 and the final answers to 0 decimal places, e.g. 5,275.) Credit Date Account Titles and Explanation Debit January 1, 2018 Lease Llability 879904 Cash 879904 2 Your answer is partially correct. Try again. What amounts will appear on the lessee's December 31, 2017, balance sheet relative to the lease contract? INDIGO COMPANY Balance Sheet (Partial) December 31, 2017 Assets Property, Plant and Equipment Equipment Liabilities Current Liabilities Leased Equipment Noncurrent Liabilities Interest Expense SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT x Your answer is incorrect. Try again. How would the value of the lease liability in part (b) change answers to 0 decimal places, e.g. 5,275.) Indigo also agreed to pay the fixed annual insurance on the equipment of $2,000 at the same time as the rental payments? (Round 880154 The lease liability Click if you would like to Show Work for this question: Open Show Work
